INTRODUCTION:

In the recent economic environment per capita income of the

people is increasing at higher rate than the rate of increase in expenditure.

As such there is likely to be surplus or savings in the community.

Therefore for the purpose of economic development is channelizing the

savings by productive means is necessary.

The role of savings and investments has been given paramount

importance in promoting economic growth of India since Independence.

After the introduction of the New Industrial policy 1991, the Indian

economy has been opened up and many developments have been taking

place, especially in capital and money markets. The revolution in the

development of communication technology has also helped to link the

issuers of financial instruments with the investors in the global financial

market without any difficulty. All these developments lead to economic

growth and the dynamics of economic growth provide various

opportunities not only in the Indian market but also in the global market

for investors to invest their savings in different attractive avenues of

investments with various features matching with their financial goals.

NEED FOR THE STUDY:

Now-a-days, interest rates on bank deposits are falling down

therefore; keeping big deposits in banks is not a wise investment option,

as in real terms the value of money is also decreasing over a period of

time. It is also a complex task for investors to find an appropriate

investment avenue, which satisfies their objectives of investments, to

minimise their chance of risk in future and at the same time, ensures a

reasonable level of growth and income on their investment. In this

situation one of the best options available to small investors is to invest

their money in the stock market. As far as common investors are

concerned, they are not well informed and competent enough to

understand the complexities involved in the movement of the stock

market. Due to the peculiar nature of the marketable securities and the

market, investments in securities require considerable knowledge, skill

and expertise of the investors and carry the risk of loss if the right type of

security is not selected and the investment decision is not taken at the

right time. Hence, investment in stock market is a highly complicated one

to the common man.

In this situation, mutual funds became a most appropriate

investment avenue for individual investors as it offers an opportunity to

invest in a diversified, professionally managed basket of securities at a

relatively low cost. In India, mutual fund industry also provides

reasonable options for the common man to invest their savings in the

capital market. The Indian mutual fund industry truly began a new era in

investing in 1993 when the private sector entered the mutual fund market.

This was because it gave investors more options and more promising

solutions. The mutual fund industry is a vital component of the economy,

serving as a conduit for the savings of millions of investors and being a

part of an organized financial system that is easily accessible to

individual investors.

Currently, raising investor awareness and expanding into urban,

semi-urban, and rural areas are the mutual fund industry's biggest

difficulties. These efforts would contribute to a more dynamic and

competitive mutual fund sector in India.

In this context, there is a need to study the perception of small

investors about the working of Mutual Funds in Urban areas of Telangana

State.
MEANING AND CONCEPT OF MUTUAL FUND :

“Drops of waters make a big ocean”

A Mutual Fund is a financial intermediary that pools the savings

of a number of small investors, in the form of units, who have a common

financial goal. The money, thus collected by them is invested in financial

market instruments such as shares, debentures, bonds, money market

instruments or some combination of these investments in such a way, as

to minimise risk, while ensuring safety and a steady return on investment.

A fund is “mutual” as all of its returns, minus its expenses, are

shared by the investors of the fund.

DEFINITION :

The Securities and Exchange Board of India (Mutual Funds)

Regulation, 1993 defines a mutual fund “a fund established in the form of

a trust by a sponsor, to raise monies by the trustees through the sale of

units to the, public, under one or more schemes, for investing in securities

in accordance with these regulations”

FLOW CYCLE OF MUTUAL FUNDS :

  An investment trust that pools the savings of several

investors with similar financial objectives is called a mutual

fund.

 The funds thus obtained are subsequently used to purchase

securities, shares, and debentures, among other capital

market products. .

 The income earned through these investments and the capital

appreciation realized are shared by its unit holders in

proportion to the number of units owned by them.

 Thus a Mutual Fund is the most suitable investment for the

common man as it offers an opportunity to invest in a diversified,

professionally managed basket of securities at a relatively low cost.

TYPES OF MUTUAL FUNDS

There are a wide variety of Mutual Fund schemes that cater to the

needs of small investors, whatever is there age, financial position, risk

tolerance and return expectations. Whether as the foundation of the

investment programme or as a supplement, Mutual Fund schemes can

help to meet the financial goals of investors. The different types of

mutual funds are as follows :

TYPES OF MUTUAL FUNDS

BY INVESTMENT
BY STRUCTURE BY NATURE OTHER SCHEMES
OBJECTIVE

Open-Ended Growth Tax-Saving

Equity Funds
Schemes Schemes Schemes

Close-Ended Income Index

Debt Funds
Schemes Schemes Schemes

Sector
Interval Balanced Balanced
Specific
Schemes Funds Schemes
Schemes
CONSTITUENTS OF MUTUAL FUNDS :
Money Market
Schemes
In accordance with the provisions of the Indian Trust Act, 1882

every mutual fund shall be constituted in the form of a trust. SEBI

Guidelines, 1992 spell out in clear terms the establishment norms for

mutual funds. It contemplated a three tier system for managing the affairs

of mutual funds. The three constituents are the sponsoring company, the

trustees and the assets management company (AMC). These three

constituents were incorporated in SEBI Regulations, 1996 for the

management of mutual funds. Apart from these three, Custodians and

transfer agents are two more important constituents of mutual funds.

These are presented in the figure given below.

 i. ASSET MANAGEMENT COMPANY (AMC): Asset

Management Company is the body engaged to run the show of a

mutual fund. The sponsor or trustees appoint AMC to manage the

affairs of the mutual fund to ensure efficient management. SEBI

desires that AMC must have a sound track record in terms of net

worth, dividend paying capacity, profitability, general reputation

and fairness in transactions. AMC is involved in basically three

activities:

 portfolio management,

 investment analysis and

 financial administration.

Therefore, the directors of AMC should be expert in these fields.

ii. SPONSOR: Sponsor of a mutual fund is akin to the promoter of a

company as he gets the fund registered with SEBI. Under SEBI

regulations, sponsor is defined as any person who acting alone or

in combination with another body corporate establishes the mutual

 fund. Sponsor can be Indian companies, banks or financial

institutions, foreign entities or a joint venture between two entities.

As Reliance mutual fund has been sponsored fully by an Indian

entity.

iii. TRUSTEES: As defined under the SEBI regulations, 1996,

trustees mean board of trustees or Trustee Company who hold the

property of mutual fund for the benefit of the unit holders. A

Trustee acts as the protectors of the unit holders’ interests and is

the primary guardians of the unit holders’ funds and assets.

Sponsor executes and registers a trust deed in favour of trustees.

There must be at least 4 members in the board of trustees and least

two third of them need to be independent.

iv. CUSTODIAN: SEBI regulations provide for the appointment of a

custodian by trustees of the mutual fund who are responsible for

carrying on the activities of safe keeping of securities and

participating in any clearing system on behalf of mutual fund.

Custodian is not permitted to act as a custodian of more than one

mutual fund without the prior approval of SEBI. They should be

independent of the sponsors.

v. TRANSFER AGENT: Registrar and transfer (R&T) agents are

responsible for creating and maintaining investor records kept in

numbered account called folios and servicing them. They accept

 and process investor transactions and also operate investor service

centre (ISCs) which acts as an official points for accepting investor

transactions with a fund.

Perception (from Latin perceptio 'gathering, receiving') is the organization,

identification, and interpretation of sensory information in order to represent

and understand the presented information or environment.

ROLE OF MUTUAL FUNDS IN INDIA :

 Mutual funds plays an important ROLE in promoting a healthy

capital market. They provide active support to secondary market and

increase liquidity of capital market and bring stability in financial market.

Role of mutual fund can be explained with the help of following points :-

1. Mobilises Savings :-

Mutual funds play an important role in mobilising savings of

millions of investors across the country. In mutual funds, savings of small

investors are mobilised, invested and returns are distributed in the same

proportion to the unit holders.

2. Instrument of Investing Money :-

Now-a-days bank rates have become very low so, keeping large

amount of money in bank does not give higher returns. People can invest

in stock market. But a common investor is not well informed about the

complexities involved in stock market movements. Here mutual funds

play an important role in helping common public to get higher returns.

3. Protection To Small Investors :-

A small investor is not safe in share market. In mutual industry

there is no such risk. Mutual funds help to reduce the risk of investing in

stocks by spreading or diversifying investments. Small investors enjoy

the benefit of diversification.

4. Tax Benefit :-
 Investors in mutual funds enjoy tax benefits. Dividend received by

investors is tax free. Tax exemption is allowed on income received on

units of mutual funds and UTI. Investment in mutual funds enjoy wealth

tax exemption within the overall limit of Rs. 5 lakhs.. No tax shall be

charged on gifts of mutual fund units upto Rs. 30,000.

5. Diversification :-

Investment in mutual funds enable investors to spread out and

minimise the risks upto certain extent. Mutual fund invests in a

diversified portfolio of securities. This diversification helps to reduce risk

since all the stocks do not fall at same time. Thus investors are assured of

average income which is not possible in other sources.

6. Multi - Purpose Service :-

Mutual funds introduces variety of innovative schemes containing

various benefits. Innovative schemes are designed to meet the needs of

different types of investors in terms of investment, dividend distribution,

liquidity etc.

7. Boost To Capital Market :-

Mutual fund has become a capital market intermediary. It bridges

the gap between retail investors and capital market. The rapid growth of

mutual fund industry leads to increased vibrancy of capital market.

5) Arrival Of Foreign Capital :-

 Mutual funds attract foreign capital. Indian Mutual Fund Industries

open offshore funds in various foreign countries and secure safe

investment avenues abroad to domestic savings. These funds enable

NRI’s and foreign investors to participate in Indian Capital Market.

6) Savings For Retirement And Education :-

Various schemes of funds with their tax benefits can help the

households to save for the retirements and education of their children.

HISTORY :